From striver alert to future cuts: five things to expect from the Autumn Statement

A few insights from Gavin Kelly to help you navigate Osborne's fiscal arithmetic.

In the Autumn Statement there will be a blizzard of facts, figures, assertions and counter-assertions. There have been a few helpful pointers on what lto ook out for (try this and this), and I’ve already given my tuppence worth on what may happen to the faltering fiscal rules. But here are a few further insights to bear in mind.

First, be on striver alert. Expect plenty of warm words about "do-ers and grafters" who get up and work hard on modest means. In a different part of the Chancellor’s speech there will be tough messages and measures for those working age families who receive tax credits and benefits. Not for the first or last time the impression will be given that these are two distinct groups inhabiting different moral and economic worlds. They aren’t. Three quarters of tax credits go to working households. If reports about capping tax credit increases at 1 per cent are correct then so-called strivers are about to be squeezed too. 

Second, there will be new news on wages – and the longevity of the squeeze. Buried in the OBR report there will new estimates for what is expected to happen to wages and inflation until 2018. In terms of the economics, and politics, of living standards from now until the election this is key data. Given that the OBR’s forecast for growth in 2013 is very likely to be marked down (from rosy 2 per cent figure it set in March) the assumption for earnings may well also fall. Also, for those who want to get inside the numbers, be warned that the figures the OBR uses tend to be a bit optimistic as they are based on the mean rather than typical (ie median) wage.

Third, watch out for childcare. Given the size of the cuts that are coming down the path you might not expect any new areas of spending. But if there is to be any (outside of new capital investment – or more accurately a slowing down of the rate of infrastructure cuts) then childcare may be a beneficiary. Measures to help with childcare costs would support employment, speak to concerns over the cost of living, and be a nod to the Coalition’s woes with some women voters. In terms of what might actually get announced there is likely to have been a lively internal debate. On the one hand, there are those who favour introducing tax-relief – a slightly saloon bar approach - which will inevitably favour the better off (and which has been skewered by my colleague James Plunkett). Against this are those who would like to build on the 15 hours of free guaranteed pre-school childcare. This latter approach would be a step in the right direction and do something to reduce the shocking disincentives to work that many second earners face in low and middle income families. That said, the government may want to hold any such announcement back to the New Year when its Childcare Commission reports.

Fourth, there is the widely anticipated raid on pension tax relief for the affluent. The briefings are that around £1-1.5bn might be raised by lowering the annual limit on pension contributions from £50k to £30k. If so, be ready for a bit of a storm from the well-organised pensions lobby. But bear in mind that tax-relief is highly regressive and very expensive. It is indeed remarkable that the support for higher rate tax payers has been so protected given some of the cuts being made – some of the claims about these measure hammering "middle-earners" are very overdone.

Even so, there are better ways of cutting tax-relief for the affluent than restricting the annual limit: the lifetime allowance for tax privileged pension contributions should be cut instead. Bringing it down from £1.5m to £1m would raise up to £1.5bn (to put this perspective note that the typical size of annuity purchased is £25k). It’s also the case that those who say that this salami slicing of pension tax relief is destabilising for savers have a point: the government should work out once and for all how much it wants to raise from pension tax relief in this Parliament and then draw a line. And when it does this, it should bear in mind that it still needs to find the billions to pay for the final increase in the personal tax allowance to £10k before 2015.

Finally, care needs to be taken in adding up the scale of the future cuts. The briefing by the IFS on Thursday lunchtime will provide the definitive view on this. But if a figure is revealed for new cuts that need to be made in 2017/18 (because the structural deficit gets pushed back by another year) then bear in mind that this will be on top of a pile of other cuts – roughly £23bn - that have already been pencilled in for 2015/16 and 2016/2017 but are yet to be allocated. Osborne is accumulating an ever larger mountain of fiscal misery to be dished out between departments and welfare spending. For a guide to this unpleasant fiscal arithmetic you won’t do better than reading this from the IPPR and this from the SMF.

But also bear in mind, that if the OBR decided at some future date to change its assumptions about the amount of spare capacity in the economy, and therefore the size of the structural deficit, then all of these numbers would be greatly affected. In which case there would be probably be a need for another Autumn Statement.

 

George Osborne. Photograph: Getty Images

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.